The unemployment rate for recent college graduates began to fall in 2011, and it has continued to do so—with a hiatus during 2013—ever since. However, aside from a brief dip in early 2011, the underemployment rate continued to climb well into 2014, rising to a level of more than 46 percent. This divergence between falling unemployment and rising underemployment between mid-2011 and mid-2014 suggests that more college graduates were finding jobs during this time, just not necessarily good ones. The steady growth of non-college jobs, coupled with the relatively soft demand for college graduates during this three-year period, appears to have forced many recent college graduates to take jobs not commensurate with their education. More recently, though, the tide has turned. With the demand for college graduates rising at a solid clip since last summer, underemployment has also finally started to come down. Since last June, the underemployment rate for recent college graduates has fallen by about two percentage points, to 44.6 percent.

The underemployment rate is still historically high.

While these trends are no doubt good news for recent college graduates, it is important to keep the gains in perspective. As we have shown before in this post and this article, the underemployment rate for recent college graduates remains quite high by historical standards. At 44.6 percent, we estimate that nearly half of this group is working in jobs that typically do not require a college degree—a rate that is much higher than when underemployment hit a trough of around 38 percent in 2000. And while the demand for college graduates appears to be picking up, significant labor market slack remains, so continued strong growth in the demand for college graduates may well be necessary to make a more serious dent in the underemployment rate.

… Most of the minimum wage debate centers on the issue of whether minimum wage increases have any effects on employment levels. Specifically, does the empirical evidence point to any significantly negative effects on employment levels following minimum wage hikes, as clearly predicted by economy theory? Some empirical evidence like the much-cited 1994 study by Card and Krueger found “no indication that the rise in the minimum wage reduced employment” at fast-food restaurants in New Jersey following a minimum wage increase to $5.05 per hour compared to nearby fast-food restaurants in Pennsylvania where the minimum wage remained constant at $4.25.

While then number of workers may not decline, the “number of unskilled work hours demanded by employers” does decrease.

Bottom Line: It’s more accurate to say that the Law of Demand predicts: a) a negative relationship between higher wages and the number of hours of unskilled work demanded by employers, rather than b) a negative relationship between higher wages and the number of unskilled workers employed. Therefore, it’s possible that a minimum wage hike won’t always negatively affect employment levels for entry-level unskilled workers, but will affect the number of hours demanded by employers for unskilled labor. That’s how we can reconcile the apparent inconsistency between economic theory and some of the empirical evidence…..

The vast majority of Americans have higher incomes than their parents, but that’s in large part because most families have two earners now, she said. Only half have more wealth, she said. Meanwhile, the savings rate is low and unemployment is high. College costs are rising faster than inflation and student loan debt is exploding.

I agree with the majority view, and the bleak jobs picture is a primary reason for my pessimism.

Although the latest jobs report showed that payroll numbers have finally returned to pre-recession levels, there is a negative side to this news.

As good as that might sound, surpassing the previous high-water mark in terms of payroll employment is cold comfort for recent graduates and other new entrants into the work force, as well as for the legions of Americans who lost their jobs in the Great Recession. While payrolls may be back to where they were before the downturn, the working age population has risen by roughly 15 million over the same period.

According to one calculation, the country still needs a “whopping 7 million” jobs to accommodate the needs of a healthy economy. The outlook is dreary.

At a rate of 217K per month with 150K needed to keep pace with population growth, how long will it take us to catch up to that 7 million? Oh …. eight years and nine months.

Perhaps this lowered fertility rate is partly a consequence of the pessimism expressed by the latest poll. Paradoxically, lower birth rates could be exacerbating the downhill slide of our economy.

The consequences of America’s recession baby bust are already significant. “We’re getting to the point where it’s dropped far enough and for a long enough period of time that it’s going to have serious implications” for the population and the economy, Mather said. With declining fertility, the U.S. population would age, and ultimately the labor force would decline as older workers retire — a trend already well underway with the Baby Boom generation reaching their mid-60s.

The financial crisis “has had the most punishing impact on demographic trends of anything since the Great Depression,” Johnson said.

College graduates claimed the bulk of last month’s job gains, while high-school grads with no college lost jobs, highlighting a persistent divide in the recovery.

While both groups have seen improvements in unemployment rates, 3.4% for college grads and 7.3% for high school grads with no college, there is general agreement that progress has been slow.

Underemployment is a problem.

… Of course, though college grads are getting the lion’s share of the jobs, it doesn’t mean those are good jobs. Overall employment gains have come from lower wage jobs, with many graduates underemployed.

Among all segments of workers sorted by educational attainment, college graduates are the only group that has more people employed today than when the recession started.

The number of college-educated workers with jobs has risen by 9.1 percent since the beginning of the recession. Those with a high school diploma and no further education are practically a mirror image, with employment down 9 percent on net. For workers without even a high school diploma, employment levels have fallen 14.1 percent.

The question is being asked by millions of young Europeans. Five years after the economic crisis struck the Continent, youth unemployment has climbed to staggering levels in many countries: in September, 56 percent in Spain for those 24 and younger, 57 percent in Greece, 40 percent in Italy, 37 percent in Portugal and 28 percent in Ireland. For people 25 to 30, the rates are half to two-thirds as high and rising.

Those are Great Depression-like rates of unemployment, and there is no sign that European economies, still barely emerging from recession, are about to generate the jobs necessary to bring those Europeans into the work force soon, perhaps in their lifetimes.

Dozens of interviews with young people around the Continent reveal a creeping realization that the European dream their parents enjoyed is out of reach. It is not that Europe will never recover, but that the era of recession and austerity has persisted for so long that new growth, when it comes, will be enjoyed by the next generation, leaving this one out.

For the first time in memory, adults in the United States under age forty are now expected to be poorer than their parents. This is the kind of grim reality that in other times and places spurred young people to look abroad for opportunity. Indeed, it is similar to the factors that once pushed millions of people to emigrate from their home countries to make their home in America. Our nation of immigrants is, tautologically, a nation of emigrants.

On the topic of sluggish jobs growth, Megan McArdle says our stubborn unemployment problem is rooted in “technology and trade”.

… Global shipping and trade liberalization has made it more practical to manufacture in low wage countries. Meanwhile, in high wage countries, technology is substituting for labor. At its peak, General Motors employed 600,000 people to make slightly less than half the cars in the country. Today it employs 77,000 to produce about 1/5th the cars on the US market. Even if it regained the market share it has lost to imports, employment in the industry would be way down.

But the lower class is also on shaky ground.Highly skilled individuals who are motivated and persistent will always find ways to support themselves. But there is a surplus of workers for middle class jobs McArdle describes as “seated, skilled, steady, decently paid”. And while large numbers of low-skill jobs continue to be created, these “jobs are, on average, pretty unattractive ones”. They are generally low statue, and sometimes miserable. In some cases, our government safety net is a more attractive alternative to these low-end jobs.

The “majority of the population” may be in for a long struggle.

… we are not creating a lot of good new jobs–defined as jobs that are relatively secure, physically tolerable, and decently paid. People with enough grit and imagination can invent themselves new jobs, but at no time in history has that described the majority of the population. The alternatives for the rest aren’t very attractive. And since modern-day America tries hard to keep people from becoming truly desperate, those jobs aren’t being created.

… Until roughly the last five years, it was possible to believe that education would be the solution: send more kids to school, retrain people for new jobs. But college graduates aren’t finding it so easy to obtain solid employment either. It’s true that having a college diploma is still much better than not having a college diploma, but that doesn’t mean that by sending more kids to school, we’re actually making the workforce more productive, much less mitigating the problem of economic change; we may just be forcing people to jump over a higher bar to gain access to a shrinking number of jobs….

A stronger safety net does not seem like a good solution.

For starters, it is politically difficult to imagine a really large class of people who simply permanently live off the state. The safety net is rooted in human instincts about reciprocal exchange. … They will lose political support if you have one group of people paying taxes, and a different group of people who can expect to live their entire life on the dole.

Such an arrangement would also be socially toxic. Being out of work is astonishingly bad for your state of mind, your social relations, and even basic skills like math and reading….

There’s a lot of flailing going on, and there has for years been insufficient concern about what all the folks on the left half of the bell curve are going to do with their lives — only now it’s looking like the left 2/3 or maybe 3/4. I’m not sure what to do either. … I do think there’s something structural going on, not just an economic cycle.

… ­Brynjolfsson, a professor at the MIT Sloan School of Management, and his collaborator and coauthor Andrew McAfee have been arguing for the last year and a half that impressive advances in computer technology—from improved industrial robotics to automated translation services—are largely behind the sluggish employment growth of the last 10 to 15 years. Even more ominous for workers, the MIT academics foresee dismal prospects for many types of jobs as these powerful new technologies are increasingly adopted not only in manufacturing, clerical, and retail work but in professions such as law, financial services, education, and medicine.

There is reason to believe today’s creative destruction differs from historical patterns.
We know that “since the Industrial Revolution began in the 1700s, improvements in technology have changed the nature of work and destroyed some types of jobs in the process”. But this chart showing the “great decoupling” raises questions about the possibility of a new era with long-term periods of involuntary employment for many.

Perhaps the most damning piece of evidence, according to Brynjolfsson, is a chart that only an economist could love. In economics, productivity—the amount of economic value created for a given unit of input, such as an hour of labor—is a crucial indicator of growth and wealth creation. It is a measure of progress. On the chart Brynjolfsson likes to show, separate lines represent productivity and total employment in the United States. For years after World War II, the two lines closely tracked each other, with increases in jobs corresponding to increases in productivity. The pattern is clear: as businesses generated more value from their workers, the country as a whole became richer, which fueled more economic activity and created even more jobs. Then, beginning in 2000, the lines diverge; productivity continues to rise robustly, but employment suddenly wilts. By 2011, a significant gap appears between the two lines, showing economic growth with no parallel increase in job creation. Brynjolfsson and McAfee call it the “great decoupling.” And Brynjolfsson says he is confident that technology is behind both the healthy growth in productivity and the weak growth in jobs.

Many white-collar jobs have been affected, as ‘“digital versions of human intelligence” are increasingly replacing even those jobs once thought to require people’.

We have seen a “hollowing out” of the middle class.

To be sure, Autor says, computer technologies are changing the types of jobs available, and those changes “are not always for the good.” At least since the 1980s, he says, computers have increasingly taken over such tasks as bookkeeping, clerical work, and repetitive production jobs in manufacturing—all of which typically provided middle-class pay. At the same time, higher-paying jobs requiring creativity and problem-solving skills, often aided by computers, have proliferated. So have low-skill jobs: demand has increased for restaurant workers, janitors, home health aides, and others doing service work that is nearly impossible to automate. The result, says Autor, has been a “polarization” of the workforce and a “hollowing out” of the middle class—something that has been happening in numerous industrialized countries for the last several decades. But “that is very different from saying technology is affecting the total number of jobs,” he adds. “Jobs can change a lot without there being huge changes in employment rates.”…

New technologies are “encroaching into human skills in a way that is completely unprecedented,” McAfee says, and many middle-class jobs are right in the bull’s-eye; even relatively high-skill work in education, medicine, and law is affected. “The middle seems to be going away,” he adds. “The top and bottom are clearly getting farther apart.” While technology might be only one factor, says McAfee, it has been an “underappreciated” one, and it is likely to become increasingly significant.

But ‘no one really knows’.

While questions remain on this issue, no one knows for certain if historic patterns of job creation will be repeated. Even Harvard economist Lawrence Katz, whose research has shown how technological advances have consistently led to job creation, tells us that ‘we never have run out of jobs, but it is “genuinely a question”’. Others raise similar doubts.

… “No one really knows,” says Richard Freeman, a labor economist at Harvard University. That’s because it’s very difficult to “extricate” the effects of technology from other macroeconomic effects, he says. But he’s skeptical that technology would change a wide range of business sectors fast enough to explain recent job numbers.

MIT economist David Autor also says “no one knows the cause” for the employment slump.

… The sudden slowdown in job creation “is a big puzzle,” he says, “but there’s not a lot of evidence it’s linked to computers.”

Many of the reasons for sluggish job growth may be rooted in “global trade and the financial crises of the early and late 2000s”. Government policies may play a role. But it is possible that recent technological advances have changed the equation in an unprecedented and permanent manner. Meanwhile, the middle class continues to suffer as politicians, economists, and employers grapple with ‘the great paradox of our era’.

According to the New America Foundation’s Ed Money Watch, among the deductions that will expire or revert to lower levels are six that totaled $23 billion in 2012: the American Opportunity Tax Credit (AOTC); the exclusion from taxable income of employer-provided educational assistance; the exemption allowing parents to claim students aged 19-23 as dependents; the student loan interest rate deduction; several health care-related scholarships; and the Coverdell account provision allowing families to invest up to $2,000 annually in to an investment account for a child’s educational expenses with no taxes on earnings or withdrawals.

Recession and higher unemployment
I suspect that many people are “blissfully ignorant” of these and other implications of the upcoming fiscal cliff. For college students, the loss of these tax breaks is probably less likely to hurt them than would the lower GDP and rising unemployment brought on by higher taxes.